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Trade credit and bank credit: Evidence from recent financial crises

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  • Love, Inessa
  • Preve, Lorenzo A.
  • Sarria-Allende, Virginia

Abstract

The authors study the effect of financial crises on trade credit in a sample of 890 firms in six emerging economies. They find that although provision of trade credit increases right after the crisis, it consequently collapses in the following months and years. The authors observe that firms with weaker financial position (for example, high pre-crisis level of short-term debt and low cash stocks and cash flows) are more likely to reduce trade credit provided to their customers. This suggests that the decline in aggregate credit provision is driven by the reduction in the supply of trade credit, which follows the bank credit crunch. The results are consistent with the"redistribution view"of trade credit provision, in which bank credit is redistributed by way of trade credit by the firms with stronger financial position to the firms with weaker financial stand

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 83 (2007)
Issue (Month): 2 (February)
Pages: 453-469

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Handle: RePEc:eee:jfinec:v:83:y:2007:i:2:p:453-469

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Web page: http://www.elsevier.com/locate/inca/505576

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  1. Fisman, Raymond & Love, Inessa, 2001. "Trade credit, financial intermediary development, and industry growth," Policy Research Working Paper Series 2695, The World Bank.
  2. Mark Gertler & Simon Gilchrist, 1991. "Monetary Policy, Business Cycles and the Behavior of Small Manufacturing Firms," NBER Working Papers 3892, National Bureau of Economic Research, Inc.
  3. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-in-Differences Estimates?," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 249-275, February.
  4. Mitchell A. Petersen & Raghuram G. Rajan, 1996. "Trade Credit: Theories and Evidence," NBER Working Papers 5602, National Bureau of Economic Research, Inc.
  5. Nilsen, Jeffrey H, 2002. "Trade Credit and the Bank Lending Channel," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(1), pages 226-53, February.
  6. Charles W. Calomiris & Charles P. Himmelberg & Paul Wachtel, 1994. "Commercial Paper, Corporate Finance, and the Business Cycle: A Microeconomic Perspective," NBER Working Papers 4848, National Bureau of Economic Research, Inc.
  7. Benjamin S. Wilner, 2000. "The Exploitation of Relationships in Financial Distress: The Case of Trade Credit," Journal of Finance, American Finance Association, vol. 55(1), pages 153-178, 02.
  8. Demirguc-Kunt, Asli & Maksimovic, Vojislav, 2001. "Firms as financial intermediaries - evidence from trade credit data," Policy Research Working Paper Series 2696, The World Bank.
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